Jan 5 Barnes & Noble Inc (BKS.N) cut its
Nook sales forecast for this year and shocked investors by
saying it was considering a sale of the electronic reader and
tablet business, sending its shares down more than 20 percent.

The bookseller has been banking on the Nook for growth, so
news that holiday sales of the basic touchscreen e-reader were
disappointing raised investors' fears that Barnes & Noble was
struggling to keep up with Amazon.com Inc's (AMZN.O) Kindle.

The largest U.S. bookstore chain has poured tens of millions
of dollars into developing and promoting the Nook, hurting its
results.

Barnes & Noble lowered the full-year sales forecast for the
Nook business to $1.5 billion from $1.8 billion.

It said holiday sales of its Nook Simple Touch, the cheapest
Nook device at $99, fell short of expectations, and cited this
as a reason for the lower forecast. One analyst said it was a
sign that the retailer could be finding it hard to compete with
its deep-pocketed rival.

"They're going to have to raise capital for Nook if they
want to stay viable," said Morningstar analyst Pete Wahlstrom.

Amazon last week said sold 1 million Kindle devices, which
includes the Fire tablet and a touchscreen device, per week in
December.

Barnes & Noble did not give out numbers but said the number
of Nook devices sold rose 70 percent during the nine-week period
ended Dec. 31.

The retailer said it expects a loss of $1.40 to $1.10 per
share in the year ending in July, much worse than the average
Wall Street forecast of a loss of 63 cents.

Barnes & Noble put itself up for sale in 2010 but attracted
only one firm offer -- a bid for $17 per share, or $1 billion,
last May from John Malone's Liberty Media Corp (LMCA.O). Liberty
ultimately decided to invest $204 million in the company rather
than buy it outright. [ID:nN1E77H1SJ]

When Barnes & Noble introduced the Nook tablet in November,
it also cut the prices on other versions of the device,
including the Simple Touch, in response to aggressive pricing by
Amazon, a company known for uncutting rivals on price.

But unlike Amazon, Barnes & Noble's other businesses do not
generate enough money to subsidize its e-reader business. Last
month, Barnes & Noble posted an unexpected quarterly loss and
warned that investing in the Nook would dent results this year.
Last February the bookseller suspended its dividend to finance
the Nook.

Barnes & Noble now expects earnings before interest, tax,
depreciation and amortization of $150 million to $180 million
for the year ending in July, down from its forecast last month
of $210 million to $250 million.

And despite the liquidation of its main rival, Borders
Group, in September, and Nook sales, Barnes & Noble now expects
sales of $7 billion to $7.2 billion in the year, down from its
initial forecast of $7.4 billion, suggesting an accelerating
decline in book sales.

If Barnes & Noble were to spin off its Nook business, it
would become a traditional bricks-and-mortar bookseller similar
to Borders, which went out of business last year.

Morningstar's Wahlstrom said the company could be banking on
being "the last one standing."

Barnes & Noble in August said Borders' liquidation would
boost annual revenue by $150 million to $200 million, but now it
expects an even bigger boost of $210 million to $250 million.

But Wahlstrom said splitting off the Nook business would be
getting rid of "its one growth driver," given the long-term,
industrywide decline in book sales.

"We see substantial value in what we've built with our Nook
business in only two years, and we believe it's the right time
to investigate our options to unlock that value," William Lynch,
chief executive of Barnes & Noble, said in a statement.

Barnes & Noble operates about 700 bookstores as well a chain
of textbook stores on college campuses.

The company, which launched the first version of the Nook in
2009, is second only to Amazon in the e-books market and claims
to have 27 percent of that market.

(Reporting by Phil Wahba in New York and Brad Dorfman in
Chicago; Editing by Gerald E. McCormick, Dave Zimmerman and John
Wallace)

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